Add Up the Product Cost as Part of Your Master Budget - dummies

Add Up the Product Cost as Part of Your Master Budget

By Mark P. Holtzman

A critical step in the budgeting process is to compute projected product cost, or the expected cost of each unit made during the budget period. To calculate Forever Tuna’s projected product cost, add together the costs of direct materials per unit, direct labor per unit, and overhead per unit.


On average, each unit costs $76.95 to make.

Product cost per unit helps you to prepare the budgeted income statement. Furthermore, this information is very useful for setting prices.

When compared to budgeting, ordinary accounting is pretty cut and dried. In ordinary accounting, you record, classify, and report what happened. No guesswork; boom, you’re done. However, in order to create a master budget, different parts of an organization need to negotiate and work out estimates and plans that coordinate all parts of the business.

This process involves more than adding — different groups need to work together until they create a budget that works best for the organization.